PhotoWorks sold for $26.5 million

This deal kind of slipped under my radar yesterday. But PhotoWorks, the online photography Web site which was founded in 1979 and formerly known as Seattle FilmWorks, agreed to be gobbled up by American Greetings Corp. for $26.5 million.

The Cleveland greeting card giant is buying the Seattle company for 59.5 cents per share, more than double the 26 cents per share price where PhotoWorks was trading earlier this week. The deal is expected to close in January.

PhotoWorks encountered plenty of troubles over the years, a journey that P-I reporter Dan Richman noted in this 2005 profile. The company once employed more than 800 people and topped $100 million in revenue in 1997 as it processed film rolls for customers. (I probably still have some of the old yellow and red labeled film rolls around the house.)

Then digital photography caught on and PhotoWorks struggled to survive. Madrona Venture Group and Orca Bay Partners attempted to throw the company a life line in 2000, investing $15 million.

But the company continued to struggle. It finished the most recent quarter with $1.1 million in cash and a $1.1 million net loss.

Not sure this deal will be chalked up as a big winner in the Madrona portfolio, which also saw one of its older portfolio companies, ShareBuilder, sold to ING for $220 million earlier this month.

The Motley Fool has more details on what American Greetings plans to do with PhotoWorks, writing that it is “becoming the Warren Buffett of cyberspace, finding value in out-of-favor photo-sharing sites that aren’t named ‘Flickr.'”